Good day, everyone, and welcome to today's Oracle Corporation quarterly conference call. Today's conference is being recorded. At this time, I would like to introduce Ken Bond, Vice President of Investor Relations, Oracle. Please go ahead, sir.
Thank you, Amber. Good afternoon, everyone, and welcome to Oracle's fourth quarter and fiscal year 2013 earnings conference call. A copy of the press release and financial tables, which includes a GAAP to non-GAAP reconciliation and other supplemental financial information, can be viewed and downloaded from our investor relations website. On the call today are Chief Executive Officer, Larry Ellison; President and CFO, Safra Catz; and President, Mark Hurd. As a reminder, today's discussion will include forward-looking statements, including predictions, expectations, estimates, or other information that might be considered forward-looking. Throughout today's discussion, we will present some important factors relating to our business, which may potentially affect those forward-looking statements. These forward-looking statements are also subject to risks and uncertainties that may cause actual results to differ materially from statements being made today.
As a result, we caution you against placing undue reliance on these forward-looking statements, and we encourage you to review our most recent reports, including our 10-K and 10-Q, and any applicable amendments, for a complete discussion of these factors and other risk factors that may affect our future results or the market price of our stock. Finally, we are not obligating ourselves to revise our results or publicly release any revisions to these forward-looking statements in light of new information or future events. Before taking questions, we'll begin with a few prepared remarks. With that, I'd like to turn the call over to Safra.
Thanks, Ken. Good afternoon. I'm going to focus on our non-GAAP results for Q4 and fiscal 2013. I'll review the guidance for Q1, I'll turn the call over to Mark and Larry for their comments. My remarks generally reflect constant dollar growth rates. This quarter, we saw a record $4 billion in new software license and SaaS subscriptions, coming within my guidance range at 2% constant growth. In general, sales force execution improved significantly in most regions during the quarter. As with most of our peers, we did see increased economic weakness in a few regions, which had an effect on our final performance. Geographically, results were somewhat mixed, with GAAP new license growing 4% in the Americas, up 5% in EMEA, but down 7% in APAC.
I'd highlight places like Brazil, which pulled down our growth in the Americas, and a number of countries in Asia, especially Australia, as being particularly affected by economic slowdowns beyond our expectations. Europe's economy remains unchanged, and we're actually pleased with our European performance. In addition, in Q4, we saw currency headwinds, especially in Japan, Brazil, and Australia, where currencies weakened 5%-8% against the dollar since our last earning call, in moves that were not anticipated in my Q4 guide. Software support revenues were $4.4 billion, up 8% on this recurring part of our business. Support attach and renewal rates continue at their usual high level. Hardware systems revenue was better than expected at $849 million, as our engineered systems had another spectacular quarter. We also saw growth in our T-series SPARC servers following a new product launch early in the quarter.
With some new M-series now available, I think we're starting to see customers refresh their systems, and we believe that we could have growth in total hardware as early as Q1. Hardware growth margins were 51%, reflecting our strategy to focus only on high-value systems, and the return of hardware growth should actually help increase growth margins even more over time. Total revenue for the quarter was nearly $11 billion, up 1% from last year. non-GAAP operating income was $5.6 billion, with operating margins expanding to 51% from 50% last year. Aside from the five quarters immediately following the Sun acquisition, non-GAAP operating margins have expanded year-over-year every quarter since November 2006. We actually continue to see ample leverage in our business model. The non-GAAP tax rate for the quarter was 23.8%, and the GAAP tax rate was 21.1%.
Non-GAAP earnings per share were $0.87 and would have been actually $0.01 higher but for the negative impact of currency, up from $0.82 last year. GAAP EPS for the quarter was $0.80, up from $0.69 last year. Operating cash flow increased to $14.2 billion over the last four quarters, and free cash flow grew to $13.6 billion over the last four quarters. Both are record results. We now have $32.2 billion in cash and marketable securities. Now, for the full fiscal year and for the first time ever, our new software sales were more than $10 billion, growing 6% in constant currency. Together, new software license and software support grew 7%, averaging 10% over the last five years, and our last major software acquisition was more than five years ago.
While hardware and hardware support declined 14%, I think we may have just seen the last of annual hardware revenue declines, which will have positive implications for total revenue. Even with the declines in hardware revenues, total revenues for the year grew 2%. To more than $37 billion. Our non-GAAP operating margin for the full year was an all-time high of 47%. Earnings per share was $2.68, growing 11% in FY 2013. Since we first shared our goal of growing non-GAAP EPS 20% over time back in 2005, we've averaged nearly 19% growth for both EPS and free cash flow over the last eight years, even though the world went through a massive economic crisis. In Q4, we purchased nearly 85 million shares for a total of $2.8 billion, and for the full year, we purchased nearly 350 million shares for a total of $11 billion.
As you saw in our release today, we announced we are restarting our quarterly dividend earlier than previously planned, with a 100% increase to our quarterly dividend, or $0.12 per share. This will commence with a record date of July 12th and a payout date of August 2nd. The board also authorized the repurchase of an additional $12 billion of common stock under our existing share repurchase program in future quarters. Between dividend and buybacks this year, we returned more than $12.4 billion, or more than 90% of our free cash flow to our shareholders. Today, we also announced that we've applied to list our common stock on the New York Stock Exchange under our current symbol, ORCL. Subject to approval by the NYSE, we expect our common stock will begin trading on the NYSE on July 15th.
Until the transfer is completed, Oracle will continue to trade on the NASDAQ under our current symbol. Moving to guidance. I will say in advance that I continue to follow the news of the economy and the results of nearly every one of our competitors, I have tried to keep that in mind in my guidance. Since I don't know what the exchange rates will be at quarter end, I'm going to give guidance in constant currency. At current rates, currency will reduce growth rates by about 1%, general growth rates, license, and revenue, and EPS by about $0.02. That's what it looks like right now. With guidance, new software license and cloud subscription revenue is expected to range from 0%-8% in constant currency in non-GAAP, and 1%-9% in GAAP.
Hardware product revenue growth is expected to range from -6% to +2% in constant currency. As a result, total revenue growth on a GAAP and non-GAAP basis is expected to range from 3%-6% in constant USD. Non-GAAP EPS is expected to be somewhere between $0.56 and $0.59 in constant USD. GAAP EPS is expected to be somewhere between $0.42 and $0.45 in constant USD. This guidance assumes GAAP and non-GAAP tax rate of 24%, of course, and it may end up being different. With that, I'll turn it over to Mark for his comments.
Thanks, Safra. Today, I thought I'd be brief and talk a little bit about our cloud business and give you some facts. Our cloud now runs well over a billion-dollar run rate. That is bigger than both Workday and SAP combined in the cloud. We are clearly the second-largest provider in the SaaS market, with more than 130 Fusion customers that are live in production today. In Q4 alone, we added 500 new SaaS customers, 300 of those in HCM alone. Not only are we bigger than Workday in HCM, but we are growing faster than Workday. They recently claimed to have added 50 new customers in HCM and ERP. We added more than 50 in HCM alone. With more than 80 new Fusion SaaS customers, we had great SaaS HCM wins at British Telecom, BMC Software, Siemens, Crédit Agricole, Yahoo, and Intuit.
In customer experience, we added 200 customers with great cloud wins at eBay, KLM Royal Dutch Airlines, Trimble Navigation, Dow Corning, Sprint Nextel, Capital One, US Foods, Acer, Tesco, and PACCAR. I just read you that list just so you get an idea of the quality of the brand names that are committing to our technology. Our success in the cloud is significant and undeniable. Let me share a few facts with you about how we run our cloud. The cloud runs on our engineered systems. We have nearly 13,000 VMs, 70 petabytes of storage in seven countries, more than 7.6 million users, and 16.5 million or billion transactions per day. Let me switch to our pipeline. It's healthy. Our sales organization is already geared to outperform our competitors. I want to say this again. Our attrition rates are down. They have declined.
By June 7th, that's roughly two weeks ago, we had 90% of our territory assignments and quotas done with sales plans accepted. That is an absolute record for Oracle. Next week, I want you to stay tuned because we're going to make a series of announcements regarding our success in the cloud and the partnerships we're forming to drive our cloud business forward. With that, I'm going to turn it over to Larry so that he can touch on some of our exciting developments in hardware.
Thank you, Mark. In engineered systems, we had a very strong quarter. Revenue was up approximately 50% as we took considerable market share from our primary competitor, IBM pSeries, which was down 32% in their most recent quarter. All our Exa products, Exadata, Exalogic, Exalytics, and the Big Data Appliance, and the Oracle Database Appliance, all had their best ever quarters. In bookings, we sold over 1,200 engineered systems in Q4, including more than 600 Exadatas. Exalogic was up more than 50% sequentially, and we sold more than 100 units of Exalytics in the quarter. For the year, we sold over 3,000 engineered systems, more than all the previous years combined. Tesco, Fidelity, Siemens, McGraw Hill, Chicago Mercantile Exchange, Saudi Telecom, to name just a few of the companies that bought engineered systems this past quarter.
Some of SAP's largest customers, giant German industrial companies, bought Exadata, not HANA, to run their SAP applications. We virtually never see HANA in the market, and SAP's HANA numbers simply don't add up. A recent analyst report pointed out that if you believe the HANA sales growth numbers in SAP's most recent quarterly report, then SAP's application business must have declined 10%. You decide. Either HANA is doing well and SAP's application business is in steep decline, or HANA's not doing so well, but SAP's application business is okay. You can't have it both ways. We don't think SAP's HANA can ever successfully compete with Oracle's Exadata and our other engineered systems in the high-performance database market. Engineered systems are now over one-third of Oracle's hardware revenue. Our SPARC server line is now completely refreshed.
Our T5 and M5 servers feature the fastest microprocessor in the world, faster than Intel and faster than IBM POWER7+ on numerous industry-standard benchmarks. With the continued rapid growth of our now much larger engineered systems business, plus our new high-performance SPARC T5 and M5 servers, we just might see overall hardware growth this Q1, and we will see overall hardware growth for the full fiscal year.
Thank you, Larry. Amber, we can now move to the Q&A portion of the call, please.
Yes, thank you. If you would like to ask a question, please signal by pressing star one on your telephone keypad. If you're using a speakerphone, please make sure your mute function is turned off to allow your signal to reach our equipment. Once again, press star one to ask a question, and we'll pause for just a moment to allow everyone an opportunity to signal for questions. We'll go first to Kash Rangan with Merrill Lynch.
Hi. Thank you very much. Good to see the hardware product and the Fusion reference really do well. On the software side, typically Oracle's had very strong May quarter finishes. We've always called it the magic of May quarter. I'm wondering if you could give us a little bit more color, Safra, Mark, or Larry, on if you saw any slippage that was specific to more so to the applications business, large ticket items, economically more sensitive, if these deals are put on hold. How is linearity shaping up in June? As you exited the quarter, did you feel a little bit better about how the trends were getting better? Because we've been hearing about software companies facing difficulties in the months of March and April. I'm just curious how things shaped up and how you exited the quarter.
Sorry for the bunch of questions, I really appreciate the color. Thank you.
I don't know which one of us should start. As I mentioned in my prepared remarks, we saw some weakness in specific regions, especially Asia Pacific, especially parts of Latin America, that came up right at the end on us. That was extremely disappointing for us because May is usually our very, very big and important month, and it's our big quarter, and it sort of lays out where it did. We've had a pretty good start, actually, in the other regions, it's too soon to tell, and that's why my guidance is where it is.
Yeah, let me add, it was no specific product. When we saw weakness, we saw weakness in database, middleware applications, in all of our software lines. It was clearly an economic issue, not a product competitive issue. The products performed kind of as we expected. It's just that they didn't reach the ceiling we thought we were going to reach in the quarter.
I'd add a little bit of color, too, Kash, that I think we actually did pretty darn well in Europe. We actually felt quite good. Considering all you read, you talk about what you read about software companies, you read a lot about the tech sector in Europe, frankly, as we've talked before, the Salesforce ad we've done there has been material and it's helped for us. We banked on conversion rates being down in Europe, frankly, they weren't down as much as we thought. We executed quite well.
We did fine in the U.S. To Safra's points, really it was, for us, Brazil and parts of Asia where we saw the rest of everything sort of behave the way we expected over the course of the year with the exception of the quarter, with perhaps the exception of engineered systems to the good, which was better than we expected going in, which led to the hardware performance that we've described. On a number of transactions basis. Some of it, to Larry's point, really has to do with the transactions just getting a bit skinnier. If you looked at number of transactions, excuse me, you wouldn't see that big a delta. A lot of it just had to do with the average size per transaction, which again, indicates to us certainly a lot of economic issue out there.
Got it. Thank you. Safra, it does look like you feel a little bit better based on the guidance, which is a lot better than we would've expected for the upcoming August quarter, for licenses especially.
Yeah. Well, we saw things pushed off. I see them closing. I do have to keep an eye on what my competitors are reporting and what's going on. It's sort of all in there together, and we feel good with where we're guiding.
Great. Thank you very much.
Thanks.
We'll go next to Brent Thill with UBS.
Thanks. Good afternoon. Mark, you're adding tremendous sales capacity, you mentioned the unforced attrition is down. Why do you think you're not seeing the resulting fall through in license results? I certainly understand the comments you made about Asia Pacific, but it is a small % of your overall revenue, and maybe if you could just expand on the ASP in Q3. I think you disclosed that was down high teens as it relates to deals over $3 million. It seems like the larger deals, you're still seeing pressure. If you could just add a little more color, that'd be helpful.
Let me just jump in in front of Mark and give you our view. We've been adding a lot of salespeople in the cloud. A lot of our additions in Europe and in North America is around our cloud offerings, which we're seeing great growth. We think as part of the transition to the cloud, the bulk of the sales adds are not in our traditional on-premises database business or our on-premises application business. The bulk of the adds have been in our cloud businesses, and we'll continue to add. We've hired about 500 salespeople and sales consultants directly out of college this year, and virtually all of them will go to our cloud businesses and about 10% of them will go to our Linux business, which is becoming very competitive with Red Hat.
It's the new businesses that we're in that is absorbing most, not all, but most of our sales adds.
Yeah. I think you got, Brent, everything Larry said, and then add to it that where we have added, because we are still, even with that add in the cloud, net up in our traditional license areas, although it's not all of what we've added, to Larry's points. We have seen the benefits. I'll tell you exactly. In Europe, we have seen bigger pipelines, and we've seen the economic pressure on the conversion rate, and that growth you see in Europe is directly related to the fact that we've added our sales force. Make no mistake about it, the growth in our pipeline that you see in Latin America, when you see some of these issues in Brazil, this is what happens when you see an economic environment like this. You see the pipe go up. You see conversion go down.
If you're going to gain share, you're going to have to be in more deals. We are in more deals. Let me give you a second point. Historically, when these economies turn, you do not have enough time to rehire your distribution capability to take advantage of the change in the economy. If that pipe is not sitting there when markets get better, you lose out on that expansion. This is actually, it's counterintuitive, I know. This is the right time to be in a position with a broader distribution capability. I'll add to it, we've been very mindful of our expenses while we've done it. When you look at our expense structure, we have taken money from other places and funded the majority of this sales force expansion.
To Larry's point, some of this is now going into ARR, annual recurring revenue, which we're seeing strong growth, which will pay us dividends as you go out over the next couple of years.
Thank you.
We'll go next to Jason Maynard with Wells Fargo.
Good afternoon. I have two questions. First, Mark, can we drill down a little bit more into Asia Pacific? If you look at the different regions on a constant currency basis, U.S. and EMEA both actually performed maybe about as expected. It's actually when you dive into APAC, the last two quarters there really fell off the cliff after a strong start of the year. I'd love to get a little bit more color, maybe by Australia and some of the different countries in there, what you're seeing. The second question for Larry is just, as you look out the next four quarters, Safra made the comment about the hardware business turning potentially positive in Q1.
What are some of the assumptions that you guys see by product within Engineered Systems and the SPARC product lines that could get you to that level of actually showing year-over-year hard product revenue growth? Thanks.
Okay. Multi-part question. I'll tackle the first part. I think you're right, by the way, in the way you described the quarter for us. We saw roughly what we expected in Europe, in fact, a little bit better than what we expected, and roughly what we expected in the Americas. Asia, as you know, there is no real Asia per se. It's a little different behavior by country. We continue to see pressure in China. As you read across most of the other tech companies described, we saw that, and we had the effect that Safra mentioned in Australia. That is both some weakness in the Australian market, which you also see as a read-through in their economy, but frankly, going up against a big prior year. We had a big prior year in Australia, and we had the economic issue that you saw. Those are the two markets.
We did fine in Korea, and fine in India overall.
On the hardware side of the question, it's really very, very simple. We had a number of businesses, other fun businesses, the commodity x86 business that we have exited and we're pretty much out of. Reselling other people's storage systems, like Hitachi and LSI Logic, which we're pretty much out of. Those declining businesses have finished declining. We think the businesses that remain, we've got two big businesses that remain. One is the SPARC server business, which is now refreshed, and we think can grow, though that is not in our assumption for growth. Our only assumption for growth is that our Engineered Systems business, which has consistently grown and grew very rapidly this quarter, will continue to grow. That alone will drive the overall hardware business into growth.
If we recover with our new SPARC line, if that recovers and also shows just a little bit of growth, the growth in hardware will be spectacular.
Next question, please.
We'll go next to Heather Bellini with Goldman Sachs.
Great. Thank you very much. I was wondering if, Larry, you could help us frame how the upcoming release of 12c could differ from past cycles in terms of license growth rates. I guess the follow-on to that would be related to pluggable database containers. I'm just wondering if you could share with us whether or not that will be part of people's maintenance contracts or whether that'll be a paid option. Thank you.
Okay. The 12c is a multi-tenant database. 12c stands for the cloud. It's the first time a database confers multi-tenancy to the applications that run on the database. As you know, the cloud business started about 15 years ago with a little company called NetSuite, then there came Salesforce and many others, what they had to do was build multi-tenancy into the application. If they wanted to run a lot of customers' data on a small number of servers and do that economically, they had to build the multi-tenant capability directly into their applications, which has certain problems. It has security problems. That means that your standard report writers won't work. A lot of standard tools just won't work because of this multi-tenancy application architecture. The next phase of multi-tenancy was virtual machine. VMs became very popular way of sharing hardware, sharing servers.
Unfortunately, that has significant overhead, much more overhead than the NetSuite, Salesforce way of doing it in applications. We think the right way to confer multi-tenancy on applications and keep security working and use the hardware very efficiently is to put multi-tenancy at the database layer, and that's what we've done with 12c. It is a separately priced option. Next week, we will be announcing technology partnerships with the most important, let me be clear, the most largest and most important SaaS companies and infrastructure companies in the cloud. They will be using our technology, committing to our technology for years to come. That's how important we think 12c. We think 12c will be the foundation of a modern cloud where you get multi-tenant applications with a high degree of security and a high degree of efficiency, where you don't have to sacrifice one for the other.
Again, I would call them startling series of announcements with companies like salesforce.com, NetSuite, Microsoft, all to happen next week. We'll be giving you the details. These partnerships in the cloud, I think will reshape the cloud and reshape the perception of Oracle technology in the cloud. 12c, in other words, is the most important technology we've ever developed for this new generation of cloud computing. Maybe I'd add something a little more mundane than that is that our database options business was really strong in the quarter, Heather. When you look at GoldenGate, security, compression, very strong performance for us in the quarter. Certainly, when you see some of the people that have jumped on these capabilities, Oracle Enterprise Manager, strong growth in the quarter. Our database options business in the quarter, very strong.
Okay, great. Thank you. Next question, please.
We'll go next to Rick Sherlund with Nomura Securities.
Thanks. Larry, just two questions for you, if you can update us on a couple of things. First, you talked at Oracle OpenWorld about some cloud services. I know you've got private, public, hybrid cloud you articulated. I wonder if you could update us on what's happening there. Second, in terms of in-memory capabilities, just reading the trades, there's been a lot of speculation that you're going to deliver some kind of in-memory capabilities that are compatible with the Oracle Database, if you could share any thoughts with us on that.
Okay, Rick. Happy to. Oracle participates in all three layers of cloud. We're really a unique cloud company. We're, as Mark pointed out, the second-largest SaaS provider in the world. We added 500 new SaaS customers alone, 500 new logos at the SaaS layer this past quarter. We actually had more, let me be clear, not to lay out, we had more new Fusion CRM. I'll be very clear. Take out Taleo, don't count it. Just look at our Fusion HCM customers. We added more new Fusion core HCM customers last quarter than Workday added their HCM plus ERP customer. That's just Fusion, not Taleo. We're growing very fast in the cloud and especially the HCM cloud, especially Fusion HCM. As Mark pointed out, we're larger in SaaS than anyone but salesforce.com. We're larger than Workday and SAP combined.
Okay, that's not the only layer we compete in, SaaS. We compete at the platform layer. If you look at Oracle historically, that's where you'd expect us to be strongest. These are our two brands in PaaS, the Oracle Database and Java. Those are the two most important platforms on the face of the earth for building applications. Both products are dominant. There are more than 9 million Java developers. On our platform business, our cloud platform business, we have over 5,000 customers on our cloud. Mark mentioned our cloud is over 6,000 servers, 12,000 VMs, almost 70 petabytes of storage in 11 locations around the world, almost 8 million users per day, and over 16 billion transactions per day. Mark mentioned all those numbers.
Again, we announced our platform service last Oracle OpenWorld, now we have over 3,400 customers in the Oracle Database Cloud and another 1,700 in the Java Cloud, and that's just the beginning. We think our PaaS business is one of our huge competitive advantages, where you tend to think of the big cloud players are either in SaaS, like a salesforce.com, or in infrastructure, like Amazon. You really don't think of a real strong PaaS player. That's where we think we have a huge advantage, and we think that accrues to our big SaaS customers. Because when you buy a SaaS product, it doesn't mean you're not going to build other little things yourself in the cloud to go along with the SaaS products you buy. With salesforce.com, they're the market leader, and I have regular respect for what Marc Benioff has achieved over there.
I think he's done a good job. They started a long time ago, they have a platform called Force.com, which is not based on industry standards. When you make additions to salesforce.com, you write in Salesforce's proprietary platform. When you make additions to our SaaS applications, you use the Oracle Database and Java, the industry standards. We think customers are going to look at the entire cloud and assess the quality of the applications, SaaS, the quality of the platform, we don't think any of the big cloud players can compete with us in the platform layer. Of course, the quality of the infrastructure, which Mark mentioned earlier, which is our engineered systems, which again, we think gives us a big competitive advantage.
The combination of 12c for the cloud, which we think will be adopted by most of the big cloud players, as well as our corporate customers as they build clouds inside their firewall, is huge. We think another advantage that we offer is the clouds that our customers are going to run internally, made up of Oracle and Java, is the same cloud that we offer in our public cloud. They can build applications and move them back and forth. They can build an application in Oracle and Java on our public cloud and move it back to their private cloud. They can take an application that runs in their private cloud and move it to the public cloud. They can do test and development in the public cloud and run it in their private cloud because our cloud is based on industry standards.
Our platform is based on industry standards. We're the only company that's doing that. Very optimistic about our ability to compete in the cloud. Again, I said earlier, we're going through this transition where we've moved a lot of our new sales guys, again, not all, to the cloud. We're moving aggressively to sell not only our applications, but our database and Java and our infrastructure in the cloud. We're investing a lot in engineering. We're investing a lot in sales because we think the opportunity is gigantic, and we're well-positioned with a key new enabling technology called Oracle 12c Database.
Operator, next call, please. A question, please.
We'll go next to Walter Pritchard with Citi.
Hi. Safra, we heard a lot about the cloud here and SaaS. I'm wondering if you could help us understand both near-term and longer-term the impact of that on licensed revenue, how that may be depressing what we're seeing on that end.
Well, at this point, the reality is that most of our customers or application customers that are taking some cloud offerings are doing it as a complementary offering to what they've already got on-site. It's not necessarily now if all of our application customers overnight, all, gosh, I don't know, 10,000 of them overnight switch to SaaS. That might have an effect. We have so many customers, and the dynamics are such that many are adding on, and some are adding on on-premise, some are adding on on cloud, and some of them are replacing on-premise with cloud. We have such a large base that net-net, we have growth. That's the dynamic right now in the event that everyone tomorrow switched over. Well, that would have a different effect, but that's not likely to happen.
Let me add my comment, which is, we think when someone chooses an Oracle application in the cloud versus an Oracle application on-premise, we make more money over time. Now, the order that revenue comes in is a little bit different because we take it ratably rather than a big chunk up front. We think when someone becomes a cloud customer, that is an economically more valuable customer to us over time than when someone buys our software on-premise. We think over a reasonable term, we benefit tremendously from the movement to the cloud.
Yeah. Add to it, Walter. There's other dynamics at play here. Because of the way our software is architected, we can sell by module. In many ways, it opens up brand-new markets to us. We can go sell to an SAP customer a module of HCM. They can buy recruiting from us. They don't have to quote-unquote, "rip and replace." Somebody like a Workday actually has to do a lot more rip and replace than we would. We can go in, supplement many of our application users today with their core on-premise app with new modules of our SaaS Fusion application. It actually, in some ways, long run, we're going to have to go through the ARR phase, where we start building up our ARR as we go. It opens up new markets that we haven't had available to us before.
Thank you.
Next question, please.
We'll go next to Philip Winslow with Credit Suisse.
Hi. Thanks, guys. Just got two questions, actually. First, back on the hardware side, obviously, we talk a lot about engineered systems, wondering if you give us an update on the M5 and the T5. I know it's early, just what are you hearing from customers about those two new processors and sets of servers? Kind of flipping gears back to the software front, Mark, I know the two of us have talked about your customer experience management solutions from CRM to marketing to commerce. Just how is that sort of set of products doing, with some of the changes competitively out there with Salesforce buying ExactTarget and Hybris going to SAP, just how you think your product line's set up there? Thanks.
Okay. I'll start with the first part of your question, which was hardware. The T-series is growing nicely. Again, I mentioned that's not part of our assumption for growth for hardware for the entire year. That's heavily weighted to engineered systems, Exadata, SPARC SuperCluster, et cetera. T is growing nicely, and there's huge interest in our M-series machine. The interesting thing about the M5 as opposed to the T5, the M5 has 32 terabytes of DRAM. It is designed to be an in-memory machine. We will announce at the end of the year that Oracle Database 12c. 12c is an in-memory database. It is designed to work exceedingly well with our M-series machines, again, which have more memory, by the way, than any other computer on the planet Earth. It's an SMP machine with 32 sockets and 32 terabytes of DRAM.
We have designed that machine in concert with the next version of our database, which comes out at the end of the year, which is a vertical columnar-compressed, in-memory, high-speed in-memory vertical database. We think one of the reasons I was very confident that SAP HANA could never compete with Oracle over the long term is because of 12c. Again, we combine that software technology with our latest M-series large-scale in-memory machine, and we think nothing can touch it. By the way, that machine is not very expensive.
Yeah. To add to it, T5 has taken off faster than T4. T4, we've talked about the growth we've seen in T4 while we've seen the reduction in M, which is fundamentally what's happened to the SPARC line. The T5, that's early days still, so we're going to have to see how it unfolds, but I'd say very encouraging from the numbers we saw both in the quarter in orders and in the pipeline. There is a large install base of SPARC that's out there for us to go sell into, particularly on the high end. To your question, I think your question was on Oracle ATG Commerce and Oracle Endeca, FatWire, which is basically the foundation of our commerce server and what we'll call our customer experience. Very strong numbers. We just don't lose deals.
At the end of the day, when you get into that space, and you've seen it particularly, too, in the retail industry, many of the big retailers that are focusing on how to connect to their customer, how to engage with the customer, how they cross-sell and up-sell to that customer, that's at the core fabric of what they've deployed. We expect to see that same sort of behavior in the telecommunications industry, financial services industry, and we love our position, and we don't believe any effect of our competitive division buys down SAP's acquisition or what Salesforce has done. Remember one more time, the leader in marketing automation software is Oracle. Oracle Eloqua is the leader. It is not anybody else. We've got a head start, and we did very well.
I mentioned in my comments, Oracle Eloqua did very well in the quarter in terms of its ARR. We like our aggregate hand. We like our position with Oracle RightNow on the service side. We like our position on the commerce side with ATG. We like our position on the marketing side with Oracle Eloqua. We feel good about where we sit.
Let me just kind of summarize what Mark said, where you think of salesforce.com as a company that has a very strong foothold in companies that sell B2B. We think we have an equally strong foothold in companies that sell B2C. While we think we're going to be aggressively compete with Salesforce, where we think we have huge competitive advantage, where our number one competitor actually turns out to be IBM in that space. We just don't lose deals to IBM in e-commerce.
Next question, please.
We'll take our final question from Keith Weiss with Morgan Stanley.
Excellent. Thank you guys for fitting me in. Maybe a last one for Safra. In terms of the guidance into Q1, can you give us a little bit of color in terms of sort of the conservatism you used in setting that guide? Maybe talk a little bit about sort of the close rates, assumptions, and how you thought about that guide.
Yeah. Well, as I said, first of all, as you know, I get a roll-up from the field, I look at the different close rates that we've had historically, the numbers that we're using right now assume a slightly lower close rate than we have historically and takes into account sort of the difference we've been experiencing, especially this quarter and in Q3. I have to know what's going on with our competitors. Since even deals that didn't close this quarter, they were not lost to competitors. They were either pushed off or what also shows up in close rates, or they became smaller by a certain %. That's really what we apply.
I'm not going to quantify it for you, but I've assumed a few points lower than would be typical for a Q1, especially since a number of the Q4 deals especially have closed already. I just had to pretty much take into account what we've been seeing for the past couple of quarters and apply that to the pipeline.
Excellent. Very helpful.
Okay, that does conclude our question and answer session. I would now like to turn the conference back over to Ken Bond for any additional or closing remarks.
Thank you, operator. That does conclude our call. If you have any questions, please feel free to call the investor relations department. Thank you for joining the call. Turn it back to the operator for closing now.
Thank you. That does conclude our conference. You may now disconnect.